Monday, 22 July 2019

How to apply for a Start up Business Grants


Funds are the blood of any enterprise. No matter how good an entrepreneur's business idea or business plan is, it will not work without the proper financing. Thus the importance of funds can not be over emphasised in entrepreneurship.


Types and sources of start up Capital

When you have estimated start up capital needs for your business, the next question is: Where do you get that capital? You will need the full amount at the start because the money is for initial investments and working capital for the first months in operation. It is therefore important that you do not start setting up your business until you have all the start up capital you need. There are many sources of capital for the entrepreneur but the most important ones are Owner's equity, debt financing in the form of loans and Grants. The following sections briefly summarize them, their advantages and disadvantage s.
Equity Financing through Personal savings
A prospective entrepreneur's first source of funding is his private sources. These include his personal savings from job, investments, shares etc, permanent capital from family and friends in the form of loans. Other sources include retirement income, the income of a wife or husband, income from a part time or full time job, investment by partners, and incorporations  and sale of stock. Equity financing is money put into a business by the owner, private investors, and/or venture capitalists.
An entrepreneur who has some part of the money he needs to either start new enterprise or expand an existing one can team up with an investor who will make the money available for use in exchange for an ownership share in the business. This could be as a silent or limited partner (not actively involved in the business) or as a shareholder. Even though equity is a risk for you, the least obligatory and least expensive method of financing open to the entrepreneur is the use of personal resources. Investing your own money in the business makes the business less risky. This is because capital from equity will put less pressure on the business than borrowed money. There is less pressure because you do not have to make repayment or pay interest in fixed dates like you have to do if you borrow money and since the capital came from you, you are accountable only to your self for what happens to the money and you are not on any ones back and call on how to use it.

Dept Financing: Dept is outside finance (formal and informal) employed in the business with obligation of regular interest payment and retirement of capital when the instrument matures. It is the percentage of money borrowed in the business. An entrepreneur who doesn't have all or some part of the money he needs for his business can opt for dept financing, where the lender charges interest for the use or rental of money loaned, but does not get a share or equity in the form of supplier credit (accounts payable) or in the form of vendor credit for capital purchases. Formal sources of dept financing of SMEs in Nigeria include the following: loans and advances obtainable on short and medium term bases from banks (commercial and development), National agencies created to aid SMEs such as Export Stimulation loans (ESL) of the Central Bank of Nigeria, the National Directorate of Employment (NDE), National Poverty  Eradication Programme (NAPEP), etc and cooperative credit societies.

If you borrow money for start up capital there will be more pressure on your business than if you use owner's equity. On set dates you must pay interest and instalments on the loan. The more you borrow, the more you have to pay in interest and instalments. This will always be difficult for a new business and it is normally better to borrow as little money as possible to start your business.

Types of Bank Financing

Commercial banks are veritable sources of funding for the entrepreneur. This can be financing the start up of the business or financing the growth of an existing business. Either way, bank financing plays a major part in the development of small business. Banks use a variety of tools to finance business. The common type are term loans and over drafts, Lines of Credit and leases.

Overdrafts: Overdrafts as the name implies is a facility from the bank to an entrepreneur allowing him to overdraw his account to a certain limit within a certain period of time usually between one to three months. Term Loans
Term loans are loans that are repaid over a fixed period of time. A business may have several term loans at the same time financing different projects or assets. Term loans may or may not have fixed interest rates, depending on the terms and conditions. Usually, term loans are used to finance capital assets, although sometimes term loans are taken out to increase cash levels (current assets) in the business. We have short, medium and long term loans.
A short term loan must be repaid in 30 days to six months. Small business with an established track record use this loan for working capital. For example, a manufacturer or retailer might use a short term loan to build up an inventory for a seasonal increase in sales.

A medium and long term loan may run as long as three years or more and usually requires collateral. You might consider it for a business start up, the purchase of new equipment, the expansion of a store or plant or an increase in working capital. You should plan to repay an intermediate term loan in monthly or quarterly payments from your business profit

Medium and long term loans can be sourced from the bank of Industry (BOI), and other commercial banks. When you are approaching a bank for a loan, be sure you are well prepared. You should have a written business plan and a budget that shows the type of business, credit needed and anticipated sales and  expenses. If you need a bank loan for an already established business, having or in the form of vendor credit for capital purchases. Formal sources of dept financing of SMEs in Nigeria include the following: loans and advances obtainable on short and medium term bases from banks (commercial and development), National agencies created to aid SMEs such as Export Stimulation loans (ESL) of the Central Bank of Nigeria, the National Directorate of Employment (NDE), National Poverty  Eradication Programme (NAPEP), etc and cooperative credit societies.

If you borrow money for start up capital there will be more pressure on your business than if you use owner's equity. On set dates you must pay interest and instalments on the loan. The more you borrow, the more you have to pay in interest and instalments. This will always be difficult for a new business and it is normally better to borrow as little money as possible to start your business.


     Lending Criteria
Every loan application from an entrepreneur is unique, and every lender or banker looks at a loan application for an individual business on its own merits and terms. Whether borrowing your start up capital from an individual or a bank, they will want to know exactly what use you want to put the money for and if they can be sure to get it back. If you borrow your money from a bank, you usually will have to comply with two major requirements:
1. A well thought through and clear business plan with a business idea that the lending institution believes I . An unclear Business plan will make a bad impression and make it difficult for the lending institution to form an opinion about your business idea.

2. The lending institution will probably also need to evaluate and rate your loan proposal using what is called the "5C's of credit" .If you pass the two requirements, then a loan will be availed to you.

No comments:

Post a Comment

Sharing is Caring